The VAR Guy

April 1, 2006

7 Min Read
Getting Smart About RFID

Think RFID represents a good opportunity? You could be onto something

Radio Frequency Identification (RFID) has been around for decades. Some experts date it all the way back to the Cold War, when the Russians used a form of RFID technology as a spying tool. For the high-tech industry, how­ever, the growth of RFID is a 21st Century phenomenon, fueled largely by dictates from Wal-Mart and the U.S. Department of Defense to require top suppliers to place RFID tags on all shipments.

Gartner Inc. pegged the RFID market at $504 million in 2005, up 39 percent from the prior year. It expects the market to grow to more than $750 million this year and surpass $3 billion by 2010. Key vertical markets for RFID include retail, aerospace and defense, healthcare, logistics and pharmaceuticals.

For VARs and systems integrators, RFID has all the hallmarks of a great opportunity: A hot market, growing quickly, requiring both technological and vertical-market expertise. There are challenges, just as there are with any new market, but sometimes the biggest risk is waiting too long to take the plunge. Many experts say now is the time to get smart about RFID.

“It has been estimated that in the future tens of thousands of suppliers to both the Department of Defense and Wal-Mart will require an RFID tag on their cases and pallets of product. The number of RFID-capable resellers is not nearly enough to meet this demand,” says Brad Wikholm, a solutions engineer for ScanSource Inc. a distributor specializing in automatic data capture, point-of-sale and wireless technologies.

“VARs need to specialize and differentiate their integration services,” says Marlo Brooke, president of Avatar Partners and an RFID consultant. “The biggest pain point in RFID is integration. How will a company integrate their SAP environment with RFID?”

The Computing Technology Industry Association (CompTIA) has recognized both the opportunity and the challenge for the VAR community and has embarked on a massive training and certification program for RFID. The program, called RFID+, will involve dozens of participating vendors and extensive coursework to help scanning VARs get up the learning curve.

“As more businesses are required to tag their goods, there is going to be more and more demand for the channel to implement these solutions,” says Dave Sommer, vice president of Electronic Commerce at CompTIA. “The skill sets and ‘need-to-knows’ related to RFID are many and varied. Clearly there is work to be done in our industry in terms of RFID education, training and professional certification. The channel needs to get educated on RFID technology, its limitations and the opportunities that are required to deploy it.”

What You Need To Know

Okay, so RFID is hot and a good market for VARs and systems integrators. But, of course, that doesn’t make it right for everyone. To determine whether RFID makes sense as an opportunity for your business, you’ll need to understand more about it. First and foremost is the RFID technology itself. There are three important aspects to this technology: scanning, radios and warehouses.

“We recommend to our resellers who attempt to sell RFID solutions that they have the following experience,” says Wikholm. “First, they should be knowledgeable about bar code technology, including both scanning and printing. Second, they should have some experience with warehousing or manufacturing. Finally, they should have the ability to configure and demonstrate some knowledge of wireless networking.”

The reason for putting bar code scanning and printing first is simple: RFID translates quite nicely from bar codes: Think of it as reading radio codes rather than physically printed ones on paper. And understanding how and what to read across the radio link gives many VARs a leg up. “RFID is not plug and play. It requires different kinds of engineering for each read zone, because no two are alike,” says Harold Clampitt, CEO of American RFID Solutions and a top RFID VAR.

Warehousing and inventory experience make sense because, as you design programs to collect the scanned information, you have to make sure the system can track where the tags end up. Plus, your customers eventually will need to integrate RFID data collection into their existing enterprise applications.

“I would highly recommend getting some knowledge of business processes related to warehousing, supply-chain management or manufacturing,” says Wikholm. Radio frequency presents several opportunities for VARs because of how radio waves propagate and how site-specific they can be. “The physics of RFID are delicate; yet RFID is generally deployed in messy environments,” says Brooke. “You can interrupt an RF signal simply by waving your hand between a reader and a tag.”

VARs can get involved in doing site surveys to determine the radio characteristics of a warehouse or other areas where goods are being moved in and out of inventory. These site assessments can help with the placement of tag readers. “We have found that our staff members who worked on radio technologies 20 years ago and even the precursors of RFID are those best suited to help with integration,” says Brooke.

It may seem obvious, but understanding the types of goods that are being tagged is a critical component. Take the two situations where refrigerators and cases of disposable razors are being tracked. “If you lose one or two tags over the course of a day’s operations, it is an entirely different matter whether that is one or two fridges or one or two cases of razors,” says Clampitt.

Understanding The Business Models

In addition to the technology, it is important to understand the potential business models. Today, there are two: One is based on extending supply-chain applications, while the other is more for a vertical market and used within a closed network of trading partners. Both are useful for establishing the business case for RFID, but they have different implications for VARs looking to get into this space.

“The real difference between these two models is the way the tags are being used,” says Wikholm. “Vertical markets use closed-loop solutions and they tend to use reusable tags within a facility, for instance in a manufacturing process. Supply-chain applications use open-loop RFID implementations. These require a tag that gets placed on a box and shipped to someone who will use the RFID tag to further their business process, like Wal-Mart using a tag that Frito Lay might place on a case of Fritos to track that box through the Wal-Mart distribution center and on to the store.”

But the differences also extend to how a VAR might bring in partners to assemble an entire solution. Brooke cautions VARs to make these choices carefully. “It’s the first few deals that are critical and that can often define what vertical market segments a company is apt to excel at,” says Brooke.

Regardless of which business model is chosen, every RFID project goes through five different phases, according to Clampitt.

  1. The first phase is a pilot program, where companies test the waters and often try a single project.

  2. Then they move to what Clampitt calls “RFID Island.” Here, there isn’t any integration into the existing corporate infrastructure and data structures, but a recognition that some data transfer is needed and that standards are important. At this phase, customers are beginning to understand the power of RFID and putting plans in place for future projects.

  3. Next comes integration and real-time data flows with Enterprise Resource Planning (ERP) systems. “We recommend that resellers who do not have application experience partner with software providers to provide a complete solution,” says Wikholm.

  4. The next phase expands the data collected from the radio tags beyond the adopting enterprise. Here the customer is sharing data among a closed user group of trading partners. This is what Wal-Mart and the Department of Defense are doing.

  5. Finally, there is RFID everywhere: Pervasive tagging, open data sharing and ultimately what Clampitt ironically says, “Billionaire rebel Sir Richard Branson invests in a new company aptly titled Virgin RFID thereby proving RFID has safe tagging.”

While this Nirvana seems far off, it could happen. “Wal-Mart galvanized the RFID entrepreneur and offered the potential of a market. They created a nucleus of change, forcing RFID products to come to life,” says Clampitt. And with Wal-Mart and the Department of Defense pushing RFID, good things could happen, says Wikholm: “The ROI for both Wal-Mart and the DOD is so large they are forced to continue down the path of requiring every supplier to comply with the requirements they are setting forth.”

Brooke agrees, to a point: “Wal-Mart has simply been building momentum in RFID. But the core benefits of RFID are what really drive the market.”

David Strom is a freelance writer based in Santa Monica, Calif., and can be reached at [email protected].

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